Aggregate planning and Master Production Scheduling

Master scheduling

Material requirements planning

Order schedulingWeekly workforce andcustomer scheduling

Daily workforce and customer scheduling

Process planning

Strategic capacity planning

Sales and operations (aggregate) planning

Longrange

Intermediaterange

Shortrange

Manufacturing

Services

Exhibit 14.1Exhibit 14.1

Sales plan Aggregate operations plan

Forecasting & demand management

Sales and Operations Planning ActivitiesLong-range planning

Greater than one year planning horizon Usually performed in annual increments

Medium-range planning Six to eighteen months Usually with weekly, monthly or quarterly

increments

Short-range planning One day to less than six months Usually with weekly or daily increments

The Aggregate Operations PlanMain purpose: Specify the

optimal combination ofproduction rate (units completed per

unit of time)workforce level (number of workers)inventory on hand (inventory carried

from previous period)Product group or broad category

(Aggregation)This planning is done over an

intermediate-range planning period of 3 to18 months

Balancing Aggregate Demandand Aggregate Production Capacity

0

2000

4000

6000

8000

10000

Jan Feb Mar Apr May Jun

45005500

7000

10000

8000

6000

0

2000

4000

6000

8000

10000

Jan Feb Mar Apr May Jun

4500 4000

90008000

4000

6000

Suppose the figure to the right represents forecast demand in units

Suppose the figure to the right represents forecast demand in units

Now suppose this lower figure represents the aggregate capacity of the company to meet demand

Now suppose this lower figure represents the aggregate capacity of the company to meet demand

What we want to do is balance out the production rate, workforce levels, and inventory to make these figures match up

What we want to do is balance out the production rate, workforce levels, and inventory to make these figures match up

Production plan when forecast is available only one month in advanceMonth November December Total CostSalaryNo. of units to be produced 2000 3000No. of workers required 20 30Salary @ Rs 4000 per worker 80000 120000 200000Hiring CostNo. of workers hired 0 10Hiring cost @ Rs 500 per worker 0 5000 5000Laying-off CostNo. of workers laid-off 5 0Laying-off cost @ Rs 800 per worker 4000 0 4000Inventory CostNo. of units in inventory 0 0Cost @ Rs 10 per unit 0 0 0Grand Total of Costs excluding Salary 9000

Production plan when forecast is available two months in advanceMonth November December Total CostSalaryNo. of units to be produced 2500 2500No. of workers required 25 25Salary @ Rs 4000 per worker 100000 100000 200000Hiring CostNo. of workers hired 0 0Hiring cost @ Rs 500 per worker 0 0 0Laying-off CostNo. of workers laid-off 0 0Laying-off cost @ Rs 800 per worker 0 0 0Inventory CostNo. of units in inventory 500 0Cost @ Rs 10 per unit 5000 0 5000Grand Total of Costs excluding Salary 5000

Required Inputs to the Production Planning System

Planning for

production

External capacity

Competitors’behavior

Raw material availability

Market demand

Economic conditions

Currentphysical capacity

Current workforce

Inventory levels

Activities required for production

External to firm

Internal to firm

Graphical MethodCumulative demand values and cumulative

production capacities are plotted on the same graph.

Identify gap between demand and production capacity in different periods

Months

Demands

Cumulative demand

J 270 270

F 220 490

M 470 960

A 670 1630

M 450 2080

J 270 2350

Ju 200 2550

Au 370 2920

J F M A M J Ju Au 0

100200300400500600700800

Demands

Demands

J F M A M J Ju Au 0

500100015002000250030003500

Series 2Cumulative demand

Heuristic Method- Key Strategies for Meeting Demand

Level- inventory size is varied keeping the workforce size and utilization of workers constant(inventory accumulation, zero training and hiring costs, no lay off cost, high employee morale, high inventory cost)

Chase – workforce size is varied according to demand, keeping the utilization of workers and inventory size constant (no backorders, negligible inventory handling costs, substantial hiring and layoff costs, low workers morale ,overtime costs during high demand)

Some combination of the two- utilization of workers is varied keeping the workforce size and inventory size constant(save inventory costs, idle time loss and overtime costs less efficiency)

Demand Forecast

Month January February March April May JuneDemand forecast (units) 1000 3000 1000 5000 7000 2000Cumulative demand 1000 4000 5000 10000 17000 19000No. of working days 24 25 20 22 20 24Cumulative number of working days 24 49 69 91 111 135Units to be produced per day to meet demand 41.66667 120 50 227.2727 350 83.33333Units to be produced per day to meet demand (approx.) 42 120 50 228 350 84

No. of units to be produced per day (Level output rate) 153.1532Approx. 154

Level Output Rate Plan

Month January February March April May JuneDemand forecast (units) 1000 3000 1000 5000 7000 2000No. of working days 24 25 20 22 20 24Output Rate (units/day) 154 154 154 154 154 154Output (units) 3696 3850 3080 3388 3080 3696Beginning Inventory 0 2696 3546 5626 4014 94Net Addition (or Subtraction) 2696 850 2080 -1612 -3920 1696Ending Inventory 2696 3546 5626 4014 94 1790Average Inventory 1348 3121 4586 4820 2054 942 16871

Total

Chase Plan

Month January February March April May JuneDemand forecast (units) 1000 3000 1000 5000 7000 2000No. of working days 24 25 20 22 20 24Output Rate (units/day) 42 120 50 228 350 84Output (units) 1008 3000 1000 5016 7000 2016Beginning Inventory 0 8 8 8 24 24Net Addition (or Subtraction) 8 0 0 16 0 16Ending Inventory 8 8 8 24 24 40Average Inventory 4 8 8 16 24 32 92 TotalChange in output rate 0 78 -70 178 122 -266Cost of change in output rate 0 2000 2000 5000 5000 8000 22000 TotalNo. of units above max. capacity 28 150Overtime Cost (@ Rs 3 per unit/ day) 1848 9000 10848

32940 Grand total

Number of units change in output rate (positive or negative) compared to previous monthRange (units) Cost (Rs)1-100 2000101-200 5000201-300 8000

Intermediate Plan

Month January February March April May JuneDemand forecast (units) 1000 3000 1000 5000 7000 2000No. of working days 24 25 20 22 20 24Output Rate (units/day) 100 100 100 200 200 200Output (units) 2400 2500 2000 4400 4000 4800Beginning Inventory 0 1400 900 1900 1300 -1700Net Addition (or Subtraction) 1400 -500 1000 -600 -3000 2800Ending Inventory 1400 900 1900 1300 -1700 1100Average Inventory 700 1150 1400 1600 -200 -300 4350 TotalChange in output rate 0 0 0 100 0 0Cost of change in output rate 0 0 0 2000 0 0 2000 TotalNo. of units above max. capacityOvertime Cost (@ Rs 3 per unit/ day) 0

6350 Grand total

Number of units change in output rate (positive or negative) compared to previous monthRange (units) Cost (Rs)1-100 2000101-200 5000201-300 8000

Intermediate Plan

Month January February March April May JuneDemand forecast (units) 1000 3000 1000 5000 7000 2000No. of working days 24 25 20 22 20 24Output Rate (units/day) 125 125 125 200 200 200Output (units) 3000 3125 2500 4400 4000 4800Beginning Inventory 0 2000 2125 3625 3025 25Net Addition (or Subtraction) 2000 125 1500 -600 -3000 2800Ending Inventory 2000 2125 3625 3025 25 2825Average Inventory 1000 2062.5 2875 3325 1525 1425 12212.5 TotalChange in output rate 0 0 0 75 0 0Cost of change in output rate 0 0 0 2000 0 0 2000 TotalNo. of units above max. capacityOvertime Cost (@ Rs 3 per unit/ day) 0

14212.5 Grand total

Number of units change in output rate (positive or negative) compared to previous monthRange (units) Cost (Rs)1-100 2000101-200 5000201-300 8000

Master scheduleIt is the result of disaggregation of an

aggregate plan. it shows quantity and timing of specific end items for a time horizon often spanning six to eight weeks.

Right cut a capacity planningMaster production scheduleAvailable to promise inventoryTime fences

Master Production Schedule (MPS)

January February week 1 week 2 week 3 week 4 week 5 week 6 week 7 week 8

Demand Forecast (units) 300 200 100 500 800 900 600 700Customer Orders (committed) 350 100 50 300 400Initial inventory in period week 0 = 500 units 500Net inventory before MPS 150 -50 850 350 -450 -350 50 -650Master Production Schedule (MPS) 1000 1000 1000 1000Projected on-hand inventory 150 950 850 350 550 650 50 350

Master Production Schedule (MPS) with Available-to-promise Inventory

January February week 1 week 2 week 3 week 4 week 5 week 6 week 7 week 8

Demand Forecast (units) 300 200 100 500 800 900 600 700Customer Orders (committed) 350 100 50 300 400Initial inventory in period week 0 = 500 units 500Net inventory before MPS 150 -50 850 350 -450 -350 50 -650Master Production Schedule (MPS) 1000 1000 1000 1000Projected on-hand inventory 150 950 850 350 550 550 50 350Available-to-promise inventory (ATP) (uncommitted) 150 550 600 1000 1000